Investors got overconfident in Spain after the European Central Bank announced last December that it would funnel cheap, three-year loans to European banks, which they could (and did) use to invest in the debt of their own nations. The ECB lent more than 1 trillion euros. Spanish government 10-year yields, which were over 7 percent last November, plummeted to below 5 percent this January and February. But they have raced back upward to just below 6 percent in recent weeks.

Spain’s yields started jumping in early March after Prime Minister Mariano Rajoy announced that the government budget deficit would miss the 4.4 percent of GDP target the previous administration had agreed to with the European Union. The problem is that the easy money from the ECB didn’t do anything to fix Spain’s fundamental problems—overindebtedness and an uncompetitive economy that, because of the common currency, can’t use depreciation as an escape hatch.

Prime Minister Mariano Rajoy is counting on a squeeze of €27 billion in the central government budget to bring the deficit down to 5.3 percent of gross domestic product this year, with 3 percent then targeted for 2013.

On Monday, Mr Rajoy also warned regional governments to cut their annual spending on health care and education by €10 billion as part of their own austerity drive. The regions accounted for two-thirds of Spain’s budgetary slippage last year, which resulted in an overall deficit of 8.5 percent of G.D.P., compared with a 6 percent target.